Correlation Between Chestnut Street and Prudential Day

Can any of the company-specific risk be diversified away by investing in both Chestnut Street and Prudential Day at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chestnut Street and Prudential Day into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chestnut Street Exchange and Prudential Day One, you can compare the effects of market volatilities on Chestnut Street and Prudential Day and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chestnut Street with a short position of Prudential Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chestnut Street and Prudential Day.

Diversification Opportunities for Chestnut Street and Prudential Day

0.45

Correlation Coefficient

Chestnut Street  Prudential Day

Very weak diversification

The 3 months correlation between Chestnut and Prudential is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Chestnut Street Exchange and Prudential Day One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Day One and Chestnut Street is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chestnut Street Exchange are associated (or correlated) with Prudential Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Day One has no effect on the direction of Chestnut Street i.e., Chestnut Street and Prudential Day go up and down completely randomly.

Pair Corralation between Chestnut Street and Prudential Day

Assuming the 90 days horizon Chestnut Street Exchange is expected to generate 0.45 times more return on investment than Prudential Day. However, Chestnut Street Exchange is 2.23 times less risky than Prudential Day. It trades about -0.3 of its potential returns per unit of risk. Prudential Day One is currently generating about -0.33 per unit of risk. If you would invest  118,142  in Chestnut Street Exchange on October 7, 2024 and sell it today you would lose (5,559) from holding Chestnut Street Exchange or give up 4.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Chestnut Street Exchange  vs.  Prudential Day One

Chestnut Street Exchange

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chestnut Street Exchange are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Chestnut Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Day One

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Day One has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Chestnut Street and Prudential Day

The main advantage of trading using opposite Chestnut Street and Prudential Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chestnut Street position performs unexpectedly, Prudential Day can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Prudential Day will offset losses from the drop in Prudential Day's long position.

The idea behind Chestnut Street Exchange and Prudential Day One pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.